Po­lice ar­rest CEO of MtGox Bit­coin ex­change

The China Post - - INTERNATIONAL - BY SHINGO ITO

Ja­panese po­lice on Satur­day ar­rested Mark Karpe­les, head of the MtGox Bit­coin ex­change, af­ter a se­ries of fraud al­le­ga­tions led to its spec­tac­u­lar col­lapse and ham­mered the dig­i­tal cur­rency’s rep­u­ta­tion.

A spokesman for the Tokyo Po­lice said France-born Karpe­les, 30, was sus­pected of ma­nip­u­lat­ing data on the ex­change’s com­puter sys­tem in 2013 to ar­ti­fi­cially cre­ate about US$1.0 mil­lion.

Ear­lier Satur­day, Ky­odo News and other Ja­panese media said po­lice were also in­ves­ti­gat­ing his pos­si­ble in­volve­ment in the 2014 dis­ap­pear­ance of nearly US$390 mil­lion worth of the vir­tual cur­rency, at cur­rent ex­change rates.

It was not im­me­di­ately clear if there would be more charges against Karpe­les, who re­port­edly de­nied the al­le­ga­tions.

TV footage showed Karpe­les, wear­ing a T-shirt and base­ball cap, be­ing led away by about half a dozen in­ves­ti­ga­tors.

The global vir­tual cur­rency com­mu­nity was shaken by the shut­ter­ing of MtGox, which froze with­drawals in early 2014 be­cause of what the firm said was a bug in the soft­ware un­der­pin­ning Bit­coins that al­lowed hack­ers to pil­fer them.

On Satur­day, lo­cal media, cit­ing po­lice, said in­ves­ti­ga­tors sus­pect Karpe­les knew de­tails about the miss­ing Bit­coins which were re­port­edly trans­ferred to an ac­count con­trolled by him — with­out no­ti­fy­ing de­pos­i­tors.

The top-selling Yomi­uri news­pa­per also said po­lice sus­pect that Karpe­les re­peat­edly trans­ferred clients’ Bit­coins into his own ac­count for spec­u­la­tive trad­ing.

No Reg­u­la­tions

The ex­change — which once boasted of han­dling around 80 per­cent of global Bit­coin trans­ac­tions — filed for bank­ruptcy pro­tec­tion soon af­ter the cy­ber-money went miss­ing, ad­mit­ting it had lost 850,000 coins worth 48 bil­lion yen (US$387 mil­lion). They were worth about US$480 mil­lion at the time of the dis­ap­pear­ance.

Karpe­les later said he had found some 200,000 of the lost Bit­coins in a “cold wal­let” — a stor­age de­vice such as a mem­ory stick that is not con­nected to other com­put­ers.

Bit­coins are gen­er­ated by com­plex chains of in­ter­ac­tions among a huge net­work of com­put­ers around the planet and are not backed by any gov­ern­ment or cen­tral bank, un­like tra­di­tional cur­ren­cies.

A cloud has been hang­ing over the Tokyo-based ex­change and Karpe­les as in­vestors de­manded an­swers, and called on the firm to pub­li­cize its data so that hack­ers around the world can help an­a­lyze what hap­pened at MtGox.

“They seem to refuse to make public more pre­cise in­for­ma­tion about MtGox’s own (in­for­ma­tion) and how and when it was stolen, if it was re­ally stolen,” a French in­vestor told AFP last year at a cred­i­tors’ meet­ing.

Karpe­les had re­port­edly re­fused to travel to the United States, where he was be­ing asked to ap­pear for ques­tion­ing in con­nec­tion with MtGox’s col­lapse.

Reg­u­la­tors have scram­bled to re­spond to the use of Bit­coins, with some reg­u­la­tors call­ing for cau­tion un­til rules are de­vel­oped to stop them be­ing abused.

Hun­dreds of crypto-cur­ren­cies have been cre­ated in the last sev­eral years. Bit­coin is by far the most pop­u­lar.

Launched in 2009 by a mys­te­ri­ous com­puter guru, Bit­coin of­fers a largely anony­mous pay­ment sys­tem and can be stored ei­ther vir­tu­ally or on a user’s hard drive.

Back­ers say vir­tual cur­ren­cies al­low for an ef­fi­cient and anony­mous way to store and trans­fer funds online.

But reg­u­la­tors ar­gue the lack of le­gal frame­work gov­ern­ing the cur­rency, the opaque way it is traded and its volatil­ity make it dan­ger­ous.

Af­ter trad­ing for cents per Bit­coin for the first two years of its ex­is­tence, it be­gan a fren­zied climb in 2011 that took it to US$40 a coin the fol­low­ing year and to US$1,100 in 2013. It is cur­rently trad­ing at around US$280.

Bit­coin’s rep­u­ta­tion was also dam­aged when U.S. author­i­ties seized funds as part of an in­ves­ti­ga­tion into the online crim­i­nal en­ter­prise Silk Road.

In May, Amer­i­can Ross Ul­bricht was con­victed of mas­ter­mind­ing Silk Road, which sold US$200 mil­lion worth of drugs to cus­tomers all over the world us­ing Bit­coin.

Dur­ing his trial, a wit­ness said in­ves­ti­ga­tors once sus­pected Karpe­les of run­ning the online black mar­ket — a claim he sub­se­quently de­nied.

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